The first line is the shader name for the engine and is usually and similar to a texture name (relative path with filename but without extension).
Line 3 and 7 initiate a shader stage with the enclosing clamps { and }.
"textures/q3map2_sm/floor.tga" in line 8 is using an image that can always be tga or jpg.

We name the shader (folder) after the base map filename firstshader.map and firstshader.bsp.
Create a folder firstshader where the image floor.tga gets dropped.
The engine will search the image for the shader in the relative location "textures/firstshader/floor.tga" that should be in a pack (pk3) file.

The first actual change will be no falling damage if a player lands on the ground (surface with the new shader).

Now we store the shader content in a shader file so the game engine can find it. For example into the relative file path scripts/firstshader.shader.
The game engine is loading any file with the extension shader in the scripts folder (scripts/*.shader).

If you want to go more into detail follow this link to a q3map2 shader manual.
Miscellaneous